Real Estate Investor · Louisville, KY · Member since 2008 · 159 posts · 13 votes
18y
I've written a detailed response to this in the past....but here is the summary.
a) You can't..........unless.....
b) You have an LLC that has a ton of history and a stellar balance sheet.
Why do you want to do this anyway? If it is to simply put the property under the LLC's name, you can do that at closing. Some bankers will also let you sign it under the LLC and then you sign as a personal guarantor.
Real Estate Investor · Harrisburg, PA · Member since 2008 · 716 posts · 41 votes
18y
Originally posted by "jbock220":
How does a new LLC purchase rental property w/o credit history? Or better yet, how do I get around this obstacle?
Originally posted by "grandwally":
You can't..........unless.....
You have an LLC that has a ton of history and a stellar balance sheet.
Actually, You Can!
I am not sure where this untruth began, but let us nip it in the bud right here.
YOU CAN BUY AND FINANCE PROPERTY IN THE LLC OR CORPORATE NAME!
(can you hear me yelling?)
That does not mean that grandwally is incorrect about the second part (only about the first). Let me explain.
I think where people get mixed up is that the entity can not finance the property by itself when it is young and inexperienced. This is a kin to not letting your 16 year old son or daughter drive for the first few times with out you sitting next to them the whole time.
Once your entity has proven itself with time and prudent financial management, it can stand on its own. That begs two questions, (1) what do you do until then, and (2) where is that line drawn at which the entity can stand on its own.
First, you co-sign. You give your personal guarantee. You financially back-up the LCC or S-corp until it can stand on its own. This is just like when that same son or daughter wants to buy their first car on credit and the bank (or your child with bended knee and hat in hand) asks you to co-sign.
Second, unfortunately there is not a real line – the line moves depending on whom you ask. Conventional wisdom is: at least 3 years in business and a company over $1M. $1M in what, you say? Certainly if the LLC has this in assets, it will meet the threshold. Short of that, $1M in sustainable receivables each year (Total Income).